Auto Industry’s Ongoing Disruption – What’s Changing?

The auto industry is undergoing rapid change, with several key factors reshaping its future. A recent report by PwC highlights significant disruptions expected to impact the sector by 2025. These include tariffs, electric vehicle (EV) adoption, competition from Chinese automakers, technological advancements, shifting consumer preferences, and global economic challenges.

According to a PwC survey, 48% of automotive CEOs believe their businesses will not remain economically viable within the next decade unless they reinvent their operations. Clearly, the need for business agility has never been more critical in the automotive world.

At the same time, PwC’s report warns automakers to brace for uncertainties. It states, “Even the most well-designed plans can be derailed by geopolitical, economic, and climate-related events beyond your control.” As a result, companies must become both resilient and adaptive to grow under such pressures.

The Impact of Tariffs on Automakers

Proposed tariffs could drastically alter the cost structures for car manufacturers. The potential tariffs include:

1. A 10–25% markup on goods from Canada and Mexico

2. Up to 60% tariffs on imports from China

3. 100–200% tariffs on vehicles built in Mexico

These tariffs could significantly affect automakers like General Motors, Ford, Volkswagen, Toyota, and Stellantis. Paul Waatti, director of analysis at AutoPacific, explained, “Tariffs on vehicles produced in Mexico could disrupt supply chains, increasing production costs and leading to higher consumer prices.”

Mexico has become a vital hub for manufacturing components used in nearly all vehicles. If tariffs target the supply chain, the ripple effects will likely influence automakers worldwide.

The Slow but Steady Rise of EV Adoption

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Electric vehicles (EVs) are becoming a critical part of the automotive industry’s future. However, adoption rates in the U.S. have been slower than expected. Meanwhile, PwC predicts growth will continue, albeit at a moderated pace, as new models enter the market and prices decrease.

At the same time, balancing regulatory requirements with market demands remains a significant challenge. Automakers must predict years in advance while developing their strategies. To succeed, companies are focusing on regionalizing operations and optimizing supply chains. Notably, Volvo, BMW, Hyundai Motor Group, and Mercedes-Benz are already investing heavily in North American production.

To appeal to customers, PwC suggests automakers lower prices and incorporate advanced technology into EVs. For instance, Hyundai Motor Group has excelled in this area by offering vehicles with premium features, such as its Kia and Genesis brands, at competitive prices.

Paul Waatti noted, “Electric vehicle sales are growing but not as quickly as expected. Automakers are diversifying their offerings to include more affordable and family-oriented models.” He highlighted upcoming models like Hyundai’s “Ioniq 9,” Cadillac’s “Escalade IQ,” Volvo’s “EX90,” and Lucid’s “Gravity” as game-changers for millennial families.

Changing Emissions Policies and Their Consequences

The automotive sector faces challenges related to emissions policies. Regulatory changes could alter the Corporate Average Fuel Economy (CAFE) standards, which set fuel efficiency targets for automakers.

The Biden administration proposed raising CAFE standards to 55 miles per gallon (mpg) by 2026. After receiving feedback, they adjusted the target to 50.4 mpg for 2031 models. Future administrations could potentially roll back these standards and disrupt this progress.

Waatti explained, “Relaxing CAFE standards may slow innovation for fuel-efficient technologies and EVs, leaving the U.S. behind markets like China.” Without regulatory pressure, automakers might offer fewer eco-friendly options, and consumers could face higher costs for fuel-efficient vehicles.

The Struggle to Compete with Tech-Forward Automakers

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The auto industry is transitioning toward vehicles defined by software rather than hardware. Features like over-the-air updates and subscription-based services are becoming standard. However, many traditional automakers lag in this area compared to tech-savvy companies and Chinese manufacturers.

On the other hand, PwC emphasized that automakers must overhaul their development processes to remain competitive. Companies like Tesla, General Motors, Hyundai, and Volkswagen are leading the shift to software-defined vehicles. Meanwhile, others, including Toyota, Subaru, and Mazda, are struggling to keep pace.

Paul Waatti added, “Success in the software-defined vehicle market requires automakers to rethink their approach. Those who fail to adapt risk falling behind in an increasingly globalized market.”

The auto industry faces significant changes that require innovation and adaptability. From EVs to tariffs, companies must stay agile to meet evolving challenges and opportunities.